IB announced its full results for the 1st semester 2008: net profits reached EUR 20.7 million or a reduction in 72%, which means the airline lost more than 24 million if compared to the results posted in the same period of 2007. Furthermore, at EUR 259.39 million, pre-tax profit is 34.2% down.

Quoting EUROBUS (Reply 3):On the contrary, Medium and long haul have increased in number of passengers a 6,3% (up to 6.1M Pax) and 3,9% (up to 16,6M Pax).

Thanks in great part because of strong demand for routes in Latin America. IB average load factor was 79.6 per cent meanwhile it reached 86.9 per cent in long haul routes. The number of paying passengers on Iberia’s Business Plus service rose 4.1 per cent year-on-year showing that yields have increased.

Quoting Hardiwv (Thread starter):IB announced its full results for the 1st semester 2008: net profits reached EUR 20.7 million or a reduction in 72%

Given the high costs of fuel and the crisis (less immigrants, lower demand, a 15% lower average revenue per ticket sold...), it seems a good figure and actually it's almost 4M€ more than some banks as Citibank forecasted. In January 2008, they expected a total profit of 90M€ for 2008, which is far from the 2007 very good results but still good. Let's see how they end the year.

2008 and 2009 will be tough years but for sure 2008 will end up with a positive result (Iberia discarded the losses unless they had to face extraordinary costs such as strikes) and in 2009 we will see some positive aspects such as:

(a) a new competitive environment with much lower price wars in the domestic sector - Clickair and Vueling will merge and end their loss-making competition, not only affecting Clickair in BCN but also Iberia in MAD;
- Spanair will cut a 25% of their network --particularly in Madrid, which benefits Iberia; and the non MAD/BCN operations, which benefits the new Vueling-- and SAS even said that the could shut the airline down in October if the unions do not cooperate with the recovery plan, which would be fantastic from the Iberia's point of view;
- Air Comet is grounding all their A320s flying from Madrid to Paris, Rome, and London)
- EasyJet and Ryanair are also scaling down their operations (temporary suspension of the Ryanair base in Valencia...)
- End of the high-speed train transition year (2008) with stabilization of the market share of the train and the airlines. Renfe will still make the AVE about 15 min faster this fall and add some frequencies, but for sure in December we will see the definitive impact of the AVE. The results were quite positive. In the case of the "Puente Aéreo" operations (open flights), Iberia was forecasting up to a 35% drop and now they have a less than 20% loss (more 15% than 20%) with no decrease of frequencies and keeping the prices constant (almost 400€). This is a quite good figure. In the case of BCN-MAD scheduled flights (point to point and low fares flights whose prices were only about 50-60€ round trip), Iberia had a dramatic drop because most of these aircrafts abandoned the route to substitute the MD87 and MD88 that had been abandoning the fleet. However, most of this point-to-point demand was gathered by Vueling, which is showing a very good performance in the BCN-MAD point-to-point route. So, at the end the overall result could be positive. Regarding the Madrid-Málaga flights, the decrease of the demand was low: only a 14%. The conclusion is then that IB is resisting quite well the dangers of the AVE. Let's wait and see the definitive impact by the end of the year.

(b) Positive expectations regarding the low-cost branch
Currently Clickair would need an extra 10% of demand to become profitable. As the overlap of Vueling is very high, the new Vueling (based in Clickair) will have this +10% load factor and even more. Moreover, less competition means a higher income per ticket (even more if Spanair supplies fewer seats / shuts down). On the costs side, more reductions: Vueling will adopt the cost structure of Clickair (which is lower because Clickair doesn't have its own handling, maintenance, and loyalty program employees, because they take the ones of Iberia) and the staff will be reduced. They are also starting hedging to fight against the high oil prices. Hopefully, Vueling will have positive results in 2009 and will be able to give dividends in some years.

(c) Even more cost cutting
Iberia will anticipate the phasing out process of their MDs in a year (the last MD flight will be in October 2008), implying lower fuel consumption. On the salaries side, the pilots were close to sign a new labor agreement with some interesting measures to improve productivity and reduce the costs (unfortunately, SEPLA decided not to sign it because some days before the signature the BA-IB deal was announced, and they said that they need to study the new environment). On the FAs side, 300 of them are retiring and being substituted by more productive and cheaper colleagues. Finally, the ground staff will face important cuts in the next months in order to resume the profitability of the handling business unit, whose results became negative after the entrance of many low-cost handling companies.
The new director plan switched from a "let's grow in the long haul business" to a "stop everything and be obsessed with costs" perspective. Let's see the concrete plans in October. However, expect even more fleet flexibility with 6 years leasing contracts in order to have a constantly new fleet, avoid some maintenance costs affecting the older aircrafts (reducing the number of overhauls too), maximizing aircraft utilization (by minimizing technical stops and the number of back-up aircrafts), and being able to increase/decrease the size of the fleet "instantaneously" according to the expected demand each year. A shame that Iberia is not following AF-KL, who is starting the use of alternative energy sources in their KLM cityhopper fleet, substituting fuel by befoul (by the way, produced in Spain). Repsol, Acciona, and smaller producers in Spain are very innovative in the research of biofuel alternatives for aircrafts. Under a high cost of fuel scenario, biofuel is cheap, but not otherwise. And given that oil price is already starting to drop, that's why only AF-KL decided to try these new energies. It's about time airlines stop / reduce their dependence on (high costs, scarce, and eco-ugly) fuel!

(d) A new personnel costs structure (???)
I'm afraid that once the LCC of Iberia (new Vueling) will break the barrier that Clickair had (no operations from MAD), Iberia could start substituting Iberia short-haul by Vueling. It would be difficult and I hope they will not be able to do this, but Vueling could have the temptation of implementing a second network which, through pricing (Iberia high prices and Vueling low prices), could force the point-to-point travelers (demanding low prices and minimum service) to take Vueling versus the business class and connecting passengers (demanding a classical service), who would take Iberia. This would trim Iberia almost to an "only connecting and business passengers" airline. As the new Vueling will have very low personnel costs (a FA of Clickair gets a 60-70% lower salary than in Iberia and they never protest)...
Separating the point-to-point traveler and the business and connecting passenger is "wise", because the product expected is very different and mixing both type of passengers is a danger because point-to-point travelers could be gathered by an airline that is more convenient to their needs (let's say, EasyJet) and business and connecting passengers feel that their classical airline product was worsened (again, a danger of loosing a passenger against Spanair, Air France...). Also the airline would like to extend Vueling's labor conditions to short haul (danger: the crews & operations have a different profile) and orient the lost production (going to Vueling) to some more profitable markets such as Africa or the Middle East?
Everything here is pure speculation. Will we see in the future Amadeus selling IB tickets only to connecting and business passengers and the rest going to Vueling (... as it already happens with the "only connections" BCN-MAD flights, which cannot be bought by point-to-point travelers; and IB5xxx flights --operated by Clickair-- that cannot be purchased by connecting passengers)?

(e) New revenues ?
Could they start charging for baggage (as American Airlines or as BA said that they could study this) or for emergency exits (as Air France), or for seat selection (as Vueling today, not sure if they will do it once merged with Clickair)?

Some negative aspects will be: (a) Air Europa deploying a new Embraer fleet, meaning that they will face lower operating cost and with such a small aircraft, they will hit in the not only dense domestic routes but also in the ones that are narrower; (b) Barcelona adding new capacity by June 2009 with the new "Terminal D", which means that the free space will be filled --as it happened in Madrid and as a matter of fact Iberia had to bring all their BCN-based aircrafts back to MAD to block the competitors-- by new supply. The new Vueling already has a quite significant network out of BCN so I don't expect an increase, so... both Air Europa (with the Embraers) and the possibility of a new Easyjet base will be the two dangers.

As a conclusion I'd say that I don't see the results negative at all. They are in line with similar LATAM focused airlines (as LAN, whose profits were similar) and still positive. Of course they are worse off, but it's a figure relating to the moment and not a structural vice. The price of oil already dropping, the new competitive environment, and the constant reforms make the business run "normally" and the future expectations good. In each low business cycle we see Iberia going like crazy, and they always recover. The possible future merger (I say "possible" and "future" because it wasn't decided yet, even if it's very likely) is interesting as it allows to merge some departments and save costs (for instance: only one frequent flying programme, jointly-ordered aircrafts making the price drop...) and gather more revenues (by merging, IB will find a more stable scenario and some support to start flights to Asia and Africa, and we will probably see even more premium passengers). The merger is not "urgent" but rather "better" for airlines as size is a barrier of entry, and more AF-KL grows, even better they do versus (relatively) smaller airlines (comparing with AF) such as IB and BA, that cannot access to some gains that are exclusive of very large airlines.

I am surprised your analysis does not include IB position to increase capacity and network in lang-haul routes, which have become extremely important in IB balance sheet to face the current tough competition in short-haul routes and difficul market conditions due to high oil prices.

It seems fuel has hit airlines hard in Europe, but at least some are still managing to post profits, although not as high as before. We could certainly expect a reduction or reduction in capacity for certain routes.